[Federal Register Volume 70, Number 247 (Tuesday, December 27, 2005)]
[Notices]
[Pages 76485-76487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7855]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52976; File No. SR-NSCC-2005-15]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Relating to Buy-
Ins in Its Continuous Net Settlement System

December 19, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 1, 2005, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change described in Items I, II, and III below, which items have been 
prepared primarily by NSCC. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of this proposed rule change is to modify NSCC's Rules 
with regard to CNS Buy-Ins in an effort to harmonize the buy-in rules 
of the industry and to assist NSCC members in reducing their exposure 
related to buy-ins.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NSCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NSCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by NSCC.

---------------------------------------------------------------------------

[[Page 76486]]

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of this filing is to modify NSCC's Rules with regard to 
CNS Buy-Ins in an effort to harmonize the buy-in rules of the industry 
and to assist NSCC members in reducing their exposure related to buy-
ins. At the request of participants and after consultation with the 
Buy-In Subcommittee of the Securities Industry Association, NSCC 
proposes to modify its Rules to create a new buy-in retransmittal 
procedure that may be utilized by NSCC Members receiving buy-in notices 
initiated outside of the CNS System (``Buy-In Retransmittal 
Notice'').\3\ Existing NSCC fees related to CNS Buy-Ins will remain 
unchanged.
---------------------------------------------------------------------------

    \3\ The specific rules being amended are Rule 11, ``CNS 
System,'' and Procedures VII, ``CNS Accounting Operation,'' and X, 
``Execution of CNS Buy-Ins.''
---------------------------------------------------------------------------

Current Process for CNS Buy-Ins
    Currently under NSCC's Rules (except with respect to securities 
subject to a voluntary corporate reorganization), a member having a 
long position at the end of any day (``Originator'') may submit to NSCC 
a Notice of Intention to Buy-In (``Buy-In Notice'') specifying the 
quantity of securities which it intends to buy-in (``Buy-In 
Position''). The Buy-In Position is given high priority for allocation 
from the night cycle on N+1 through completion of the CNS day cycle at 
approximately 3 p.m. eastern standard time on N+2.\4\
---------------------------------------------------------------------------

    \4\ The day the Buy-In Notice is submitted to NSCC is referred 
to as N, with N+1 and N+2 referring to the succeeding days. Each CNS 
day begins in the evening and includes an evening allocation of 
securities and a daytime allocation of securities.
---------------------------------------------------------------------------

    If the Buy-In Position (or a portion thereof) remains unfilled 
after the evening allocation on N+1, NSCC issues CNS Retransmittal 
Notices on the following morning (N+1) to a sufficient number of 
members with short positions. NSCC issues CNS Retransmittal Notices in 
an aggregate quantity at least equal to the Buy-In Position. In no case 
will the Buy-In liability of a member exceed the Buy-In Position or the 
total short position of the member. If several members have short 
positions with the same age, all such members are issued CNS 
Retransmittal Notices even if the total of their short position exceeds 
the Buy-In Position. If the Buy-In Position is not satisfied by 3 p.m. 
on N+2, the buy-in may be executed.
    This current process will remain in effect. Buy-In Notices 
transmitted by a member which is the original submitter will be 
referred to as ``Original Buy-In Notices.''
Proposed Procedure for CNS Buy-In Retransmittals
    At times, an NSCC member will be in receipt of a buy-in notice 
initiated outside of the CNS system while at the same time be failing 
to receive shares from CNS in the same security. Recognizing that such 
externally initiated buy-ins may expire before the time the expiration 
period that NSCC's Rules currently provide as the expiration for CNS 
buy-ins (i.e., the current N+2 expiration), NSCC is proposing a new 
procedure to permit retransmittals of such buy-ins with an 
appropriately shortened execution time frame.
    Accordingly, the new procedure would provide that an NSCC member 
which has a long position in CNS at the end of any day (i.e., a fail to 
receive) and which is in receipt of a buy-in notice for securities of 
the same CUSIP that was initiated outside of the CNS System may submit 
a ``Buy-In Retransmittal Notice'' to NSCC. If the Buy-In Position (or a 
portion thereof) that was the subject of the Buy-In Retransmittal 
Notice was not satisfied by 3 p.m. on N+1, the buy-in could be 
executed. The Buy-In Retransmittal Notice would identify the entity 
that initiated the buy-in against the member.
    The differences between a Buy-In Retransmittal Notice and an 
Original Buy-In Notice would be as follows:
     An Original Buy-In Notice will refer to a Buy-In Notice 
transmitted by a member for which the member is the original submitter. 
A Buy-In Retransmittal Notice will refer to a Buy-In Notice submitted 
by a member where the member has received a buy-in notice outside of 
the CNS system with respect to securities of the same CUSIP.
     The member submitting a Buy-In Retransmittal Notice will 
receive an elevated priority for CNS allocations upon NSCC's receipt of 
the notice. The member submitting an Original Buy-In Notice will 
continue to receive elevated priority on the morning of N+1.
     The member submitting a Buy-In Retransmittal Notice will 
be provided with five additional fields to be used to identify the 
entity or entities that initiated the buy-in against the member. At 
least one such entity other than the member must be identified or NSCC 
will reject the Buy-In Retransmittal Notice.
     For Buy-In Retransmittal Notices, NSCC will transmit CNS 
Retransmittal Notices to CNS short members upon receipt of the Buy-In 
Retransmittal Notice on N. The CNS Retransmittal Notice will identify 
both the submitting member and the entity or entities that initiated 
the buy-in against the member. For Original Buy-In Notices, NSCC will 
continue to transmit CNS Retransmittal Notices to short members on the 
morning of N+1.
     A buy-in based on a Buy-In Retransmittal Notice may be 
executed on N+1 if the Buy-In Position (or a portion thereof) is not 
satisfied by 3:00 p.m. on N+1. The execution of a buy-in based on an 
Original Buy-In Notice will continue to be at 3 p.m. on N+2.
Technical Correction
    In addition to modifying NSCC's Rules and Procedures to reflect the 
above changes, NSCC will also make a technical correction to Procedure 
X, ``Execution of Buy-Ins--CNS System.'' The procedure states that 
members who receive CNS Retransmittal Notices and do not satisfy them 
assume liability for the loss, if any, which occurs as a result of the 
buy-in and that those members with the oldest short positions after the 
evening cycle on N+2 will first be held liable for an executed buy-in. 
Procedure X should reflect that it is the oldest short positions after 
the day cycle on N+2 that will first be held liable for an executed 
buy-in.
Implementation
    If approved by the Commission, NSCC plans to implement these 
changes on a pilot basis open to all members on the later to occur of 
January 13, 2006, or within one week of the Commission's approval of 
the proposed rule filing. The pilot will be limited to buy-ins of CNS 
eligible NYSE listed securities. NSCC anticipates that the pilot phase 
will be completed within thirty calendar days of implementation at 
which time buy-ins of all other CNS eligible securities will be 
permitted under these proposed changes. At that time the pilot will 
cease. NSCC will notify its members by an Important Notice of the 
specific date on which the pilot will expire and the proposed buy-in 
procedures are available for use with all CNS eligible securities.
    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder applicable to NSCC because it will assist NSCC 
members in reducing their buy-in related exposure, thereby promoting 
the prompt and accurate clearance and settlement of securities 
transactions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.

---------------------------------------------------------------------------

[[Page 76487]]

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received from Members, Participants, or Others

    The proposed rule change was prepared after consultation with the 
Buy-In Committee of the Securities Industry Association. Written 
comments relating to the proposed rule change have not yet been 
solicited or received. NSCC will notify the Commission of any written 
comments received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period: (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding; or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (A) by order approve such proposed rule change or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to [email protected]. Please include 
File Number SR-NSCC-2005-15 in the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NSCC-2005-15. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filings also will be 
available for inspection and copying at the principal office of NSCC 
and on NSCC's Web site, http://www.nscc.com\legal. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NSCC-2005-15 and should be 
submitted on or before January 17, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. E5-7855 Filed 12-23-05; 8:45 am]
BILLING CODE 8010-01-P